A Portfolio of Paintings: Investing in Art

01/31/2018     News and Film, Appraisal Services, Trusts and Estates

Many people, when considering their investment options, think of the traditional routes of stock portfolios and real estate. But with the right guidance and consideration, collecting or selling art with an eye to supplementing your traditional investments offers an aesthetic appeal in addition to a potential monetary one.The Numbers Don 't LieArt as an investment has become an emerging interest sector for accounting and investment firms alike, proof that the financial landscape has changed in response to the success of the art market in recent years. The ACCA, the Association of Chartered Certified Accountants, said in 2015 that “the potential rewards of treating art as an investment were highlighted when Picasso 's “Les Femmes d 'Alger” broke auction records by selling for $179.4m…more than five times the [price] it fetched when it last exchanged hands in 1997.” That kind of return, they said, was better than the top 100 companies on the London Stock Exchange.And the market has only gotten stronger in the years since, despite a brief economic slowdown in 2016. The global auction market saw an 18% growth in sales in the first half of 2017. In their annual Art & Finance report, global professional services firm Deloitte found that 86% of wealth managers reported that their clients buy art with a focus on investment value, up from 2017. An equally large majority of wealth managers surveyed, 88%, think “art and collectibles should be included as part of the array of wealth management solutions,” with Estate Planning at the forefront of those services. Close to 90% of those surveyed said they were offering advice related to art and estate planning.With a massive transfer of wealth from baby boomers to millenials about to occur, art and estate planning is likely to become an increasingly important area for the wealth management industry.[1]Or do they?Michael Moses, founder of the Mei Moses Fine Art Index, a firm that measures art prices and tracks the repeat sales of close to 40,000 works, estimated that an evening sale in New York in 2014, “the average compound return was 20 percent.”[2]While that makes art sound like an easy investment with a guaranteed payout, Moses warns caution: his index estimates art averages a return of 2.26%, just slightly less than the return on government bonds, which have a return of 2.5%. For passionate collectors, however, hanging a savings bond on your wall isn 't an appealing option.What to KnowLike any investment, understanding the market is key to making educated and informed choices. Collectors who are already familiar with art market are at somewhat of an advantage. However, the old investment adage “buy low, sell high” is harder to achieve with a market as unpredictable and sometimes volatile as the art world. Artists who once commanded high prices at auction may not again, or they may, but only after a very long period of time. Patience, as they say, is a virtue. Although those who are patient are often rewarded, time alone does not guarantee appreciation. Art, by definition, is a partly aesthetically evaluated commodity, and value, like tastes and trends that define it, can be fickle over time. What 's more, some pieces may need restoration work to maintain their value down the road, and proper preservation and care is always important factor in determining value.Specialists in our Trusts & Estates department uniquely understand the fluctuations, variations, and trends in the art market, and can provide recommendations based on your situation. Speak to an expert today. [1]    https://www2.deloitte.com/lu/en/pages/art-finance/articles/art-finance-r...[2]    http://www.accaglobal.com/za/en/member/member/accounting-business/insigh...